Nov

27

In Practical Speculation, Vic and Laurel identified a number of ways of making deceptive non-verifiable predictions, and described techniques for marketing stock prediction abilities and systems. I came across a good supplement to such methods by Ian Rowland in "Full Facts Book of Cold Reading" (2nd edition, 2001). What is "cold reading"? These are techniques used by magicians and palm readers to deceive their victims, much as many market participants are deceived by the same techniques into believing the practitioner has a method to predict the market. I will try to give some market examples applicable to the current situation from top news sources such as Yahoo Financial, CNN and my own repertoire.

1. Rainbow Ruse- Have one trait and, at times, the opposite. "The bad news out of the financial sector will continue to flow, and on the days that it does, the market will take a hit", said Chris Johnson, chief investment officer at Johnson Research. "But select stocks will outperform the rest of the market", he said, "particularly in technology".

"Robert Loest, portfolio manager at Integrity Funds, said that a late December rally could depend on what the Fed does on Dec. 11." CNN

2. Barnum Statements- General statements that fit most people (combine w/ forking). "I think we're going to have a tremendous amount of volatility and basically stay in a trading range until we get information on first-quarter earnings," said Dan Genter, president at RNC Genter Capital Management." Yahoo

3. Fuzzy Fact- General broad statement likely to be right. "An end of the year run is not necessarily off the table," said Art Hogan, chief market analyst at Jefferies & Co. He said that Wall Street still needs to work its way through a lot on the financial side. Yet, the broad selloff of recent weeks may have primed stocks for a bigger bounce back, particularly in the areas of the market that are unaffected by the credit market mess. "But there's no question of volatility," he said. "It's going to be very bumpy through the end of the year." Yahoo

4. Good Chance Guess- ("I see a blue car" or "a house with number 2 in address") I see the number 1450 in your near future. Me

5. Lucky Guess- Make 2, 3 parts. If hit, then wow; if miss, they'll forget. 1400 is going to be a support area, unless it breaks through. Otherwise, so we are likely to see some resistance at the 1450 area and if broken a run at 1500 again and then possibly new highs.

6. Push Statements- State something wrong and keep pushing it! The subprime scare is pushing stocks down and may spill over into the general economy causing recession and global slowdown.

7. Russian Doll- Statement with many possible layers of meaning; keep working till get hit. Market participants were concerned about Wall Street sold off sharply Monday as concerns about a weakening credit market wiped out investors' enthusiasm about strong retails sales over the holiday weekend. For a brief period today, there was a twinge of optimism that the stock market would be able to score back-to-back gains. Reports of stronger than expected retail traffic over the Thanksgiving holiday contributed to that view. However, it wasn't long before concerns about the financial sector (-4.1%) took hold again and knocked the market down to size. Briefing.com

8. Peter Pan/Pollyanna- Tell them what they want to hear. "After years of living happily beyond their means, Americans are finally facing financial reality. A persistent rise in energy prices will mean bigger heating bills this winter and heftier tabs at the gas pump. Job growth is slowing and wage gains have been anemic. House prices are sliding, diminishing the value of the asset that's the biggest factor in Americans' personal wealth. Even the stock market, which has been resilient for so long in the face of eroding consumer sentiment, has begun pulling back amid signs of deep distress in the financial sector." Fortune

9. Certain Predictions- No time frame. The market is very likely to make new all time highs despite the recent sell offs.

10. Likely Predictions Unlikely Predictions- The abandoned baby pattern seen earlier in November was similar to the pattern that preceded the big August sell offs.

Self-fulfilling- "You will make a new start" The market may see new lows before turning higher and cause uncertainty among traders creating risk.

Vague Prediction. "The market is now looking toward 2008 and a slowdown, and I find it hard to believe that we can have a year-end rally," Mendelsohn added.

But hey, there are some reasons why Wall Street might see a typically upbeat December and an end of the year "Santa Claus" rally. (From Cnn Money) (predict both sides, always right if market up or down)

Unverifiable- The pull back to resistance level provided support for the overnight rally. The Asian traders encouraged by strength in the yen decided to bid up the SP in the night market. Me.

Larry Williams adds:

The biggest part of cold reading is called 'pumping': asking questions that give a clue to the correct answer; it is very effective in allowing someone to think you knew.

Most cold readers rely on a 11 psychological traits from a study done at the University of Michigan, traits we all share, that can be made into specific statements. The cold reader will use the first three on client A, the next three on client B , etc. so they don't hear the same thing.

Here are a few…

There is someone from your past you wish you could talk with again

There are issue with one of your parents (pump comes next, usually boys are with dads) I see a parent with long hair… they reply yes ,my mother (you agree and look very wise) or if they shake their head and the reply is, 'your mother was not the one it was your father.'

my favorite:

growing up there were s-xually awkward times and you still have unsettled areas here.

Word games can be very impressive in the right mouths.

Craig Mee replies:

Thanks Larry… I remember watching a show on this topic many years ago, which opened my insights into these people… and the following day I was an extra on a Gatorade commercial , which went on for hours, at some point I found myself, next to a very attractive young lady, analyzing what could it be that made her sit here at 2am in the morning for some spare cash… (For me no doubt it was to bolster trading capital!)… so I surmised that she must be there for a specific purpose, ie need the extra cash for something special, I then thought OK, lets go with a wedding, and she either needs a new pair of shoes or a new dress. Well at that point I turned to her and said, "who is getting married and what colour are the shoes you are buying!?"… well I struck gold, and she was beside herself… Certainly a great way to start a conversation with the opposite sex as well!